Stadium Auto, Inc. v. Loya Insurance Company

Citations: 440 S.W.3d 772; 2013 Tex. App. LEXIS 7795; 2013 WL 3214618Docket: 08-11-00301-CV

Court: Court of Appeals of Texas; June 26, 2013; Texas; State Appellate Court

Original Court Document: View Document

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Stadium Auto, Inc. appealed a summary judgment in favor of Loya Insurance Company regarding a claim for coverage under an auto insurance policy. The case originated when Olga Salazar purchased a 2005 Ford Expedition from Stadium, financing the vehicle while Loya issued a policy that excluded Junior Sanchez as a driver. On April 30, 2010, Sanchez, who drove the vehicle without Salazar’s permission, was involved in a collision. After Salazar stopped payments to Stadium and sought coverage, Loya denied the claim based on the exclusion. Stadium sued Loya for violating the Texas Insurance Code and the Texas Deceptive Trade Practices Act, claiming Loya misrepresented the policy's coverage and was estopped from denying liability. Loya sought summary judgment, arguing it had no obligation to pay under the insurance policy due to Sanchez being an excluded driver. Stadium countered with its own summary judgment motion, contending that Loya was obligated to compensate for the vehicle's value. The trial court denied Stadium's motion and granted Loya's without specifying reasons. On appeal, Stadium argued that the trial court erred in its decisions. The appellate court noted the standard for reviewing summary judgments, emphasizing that the moving party must show no genuine issues of material fact exist. It concluded that the summary judgment could be affirmed if any of Loya's theories were valid, given the lack of specification in the trial court's ruling.

Stadium filed a lawsuit against Loya under Section 541.151 of the Texas Insurance Code, which allows individuals to seek damages for unfair or deceptive practices in the insurance industry. Stadium claimed Loya engaged in unfair settlement practices by denying liability under the 515A Endorsement and argued that this conduct also violated Section 17.46(b)(12) of the Texas Business and Commerce Code, which prohibits misrepresentations regarding rights or obligations in agreements. Additionally, Stadium contended that Loya was estopped from denying liability based on the declarations in the policy, specifically arguing that the 530A Endorsement provided coverage despite the exclusion of a named driver.

In response, Loya moved for summary judgment, asserting it did not violate the Insurance Code as it did not misrepresent material facts or policy provisions. Loya further claimed that it did not represent that the policy conferred non-existent rights and that the provisions were not the cause of Stadium's damages. Loya also argued that the estoppel claim failed, stating it had not made false representations or concealed facts from Stadium, who either knew the actual circumstances or could have discovered them.

The trial court granted summary judgment in favor of Loya, denying Stadium’s motion without specifying the grounds for the decision. On appeal, Stadium maintained that Loya was obligated to pay the claim under the loss payable clause, emphasizing that the vehicle was taken by an excluded driver without the insured's consent.

Stadium claims on appeal that the incident involving the vehicle constituted theft, arguing that Part D of the policy covers vehicle theft. Additionally, Stadium contends that Salazar’s failure to prevent Sanchez from driving the vehicle constitutes an insured omission, triggering Loya's obligation to pay under the loss payable clause. While Stadium raised the omission argument at trial, it did not assert that Loya's actions amounted to theft or that theft was covered by the policy in its summary judgment response. As a result, Stadium waived the theft argument under Rule 166a(c), which precludes consideration of issues not explicitly presented to the trial court. However, the omission argument concerning the 530A loss payable clause was preserved.

The appeal focuses on the interpretation of the named driver exclusion and the 530A loss payable clause. If Loya is correct that it is not liable under the 530A clause because the loss occurred while an excluded driver, Junior Sanchez, operated the vehicle, it is legally justified in denying liability and entitled to summary judgment regarding alleged violations of the Insurance Code and DTPA. The 515A Endorsement clearly states that no coverage applies when an excluded driver operates the vehicle, and it does not limit this to instances of the insured entrusting the vehicle. Since Sanchez was operating the vehicle at the time of the accident, the insured lost coverage per the endorsement. The central issue remaining is whether the 530A loss payable clause obligates Loya to payout, despite the loss of coverage due to the excluded driver operating the vehicle, raising the question of whether Stadium's rights under the policy align with those of the insured or exceed them.

The loss payable clause specifies that coverage for damage to the insured vehicle will be paid to the insured and the designated loss payee, and remains valid unless the loss results from the insured's fraudulent acts or omissions, specifically related to conversion, secretion, or embezzlement of the vehicle. The First Court of Appeals in *Old American Mutual Fire Insurance Company v. Gulf States Finance Company* addressed a similar clause where coverage was denied after the insured allowed an excluded driver to use her vehicle. The court noted that the loss payee could not recover unless its rights exceeded those of the insured, who was barred from recovery due to the exclusion. It contrasted the 530A clause with other types of loss payable clauses, highlighting that the 530A clause offers the loss payee more protection than an open clause but less than protections provided under clauses that allow recovery despite the insured's acts or neglect. The court concluded that the loss payee under the 530A clause is only safeguarded against the insured's fraudulent actions; thus, if the insured loses coverage for reasons other than fraud, the loss payee also loses coverage. In this case, the coverage was lost because the insured allowed an excluded driver to operate the vehicle, which was deemed a non-fraudulent act. The court further clarified that when an excluded driver operates the vehicle, coverage is void for both the insured and the loss payee. The current case seeks to differentiate itself by arguing that the excluded driver acted without the insured's permission, suggesting that the insured's inaction—failing to prevent the driver from using the vehicle—constitutes an omission.

Stadium failed to provide authority supporting its claim of an omission by the insured related to the 530A loss payable clause. Evidence indicated that Sanchez took Salazar’s vehicle without permission, yet there was no demonstration of any omission by Salazar herself. The insurance policy did not prohibit Sanchez from driving, nor did it require Salazar to prevent Sanchez from using the vehicle. Salazar acknowledged that coverage would be lost if Sanchez drove, but her inability to prevent Sanchez from taking the keys did not constitute an omission under the policy. Thus, Stadium's rights aligned with those of the insured. The ruling in Old American clarified that the act of entrusting the vehicle to an excluded driver was not fraudulent and led to loss of coverage for both the insured and the loss payee. As a result, Loya established that Salazar lost coverage under the 515A Endorsement due to Sanchez driving the vehicle, which also meant Stadium lost coverage. The trial court's denial of Stadium's summary judgment motion and its grant of summary judgment in favor of Loya were upheld, and the appellate issue was overruled.